Paper Supply Chain:
A Deeper Look at our October PIPI Data,
and the BIG Takeaway
Dr. Ralph Williams Jr.
Associate Professor of Management
Jones College of Business
Middle Tennessee State University
Dr. Richard Tarpey
Assistant Professor of Management
Jones College of Business
Middle Tennessee State University
Here’s a formula:
Paper mills producing less printing paper + pandemic-related shipping problems from overseas + labor shortages and strikes at mills + an increase in demand = significant delivery delays, some unavailable products, and significantly higher costs.
A few years ago, who could have imagined that our industry would face these paper supply issues?
In our October PIPI (Printing Industry Performance and Insights) study, we explored how supply chain problems affected our industry and how high-performing firms reacted to these issues. Recently, we stepped back and took a deeper look at our data to consider what printing company leaders might learn from a 30-thousand-foot overview. What’s the big takeaway?
Applying more sophisticated statistical analysis reinforced what we saw in our first look at the data: higher-performing firms proactively address paper supply issues. They are preemptive in their approach, seeking actions that forestall future disruptions. This strategy contrasts with a reactive approach – applying band-aids when a problem surfaces. Here are examples of proactive supply-chain tactics:
-
Seeking relationships with alternative suppliers, even when solid relationships are present.
-
Discussing future projects with customers and negotiating plans to order paper well ahead of when the project is ready to start.
-
Have scheduled meetings with suppliers to discuss the current situation and have open-ended, creative discussions of potential approaches.
-
Aggressively seek to reduce waste.
-
Continuously and objectively assess suppliers’ commitment to your firm and your trust in them.
-
Review your history of purchases, consider your sales forecast, and build a paper inventory.
-
Continuously monitor relevant financial ratios – such as days-in-inventory and days-in-accounts payable – and adjust as needed.
So, what’s the big takeaway from all this? Be Proactive!
One would think the pandemic taught company leaders to be more proactive in preparing for “black swan” events. However, consider prior events that significantly disrupted supply chains in other industries, such as the Southeast Asia tsunami in 2004 or the Tohoku earthquake and subsequent tsunami in 2011. After these events, many companies discussed the need to be more proactive and more diligent with their risk management strategies, However, 10-20 years later, many had not taken significant measures toward hardening and insulating their supply chain. While it would have been impossible to foresee or mitigate a total shut-down of the global economy, many companies failed to learn from these past events how to undertake a basic proactive approach.
Let’s expand this “proactive approach” beyond the supply chain. What can you do to prompt “proactive thinking” by your team from a broad view of your firm?
Most are familiar with “SWOT” (Strengths, Weaknesses, Opportunities, and Threats). But how many of you apply SWOT in your leadership. In consulting printing firms, I found SWOT discussions especially effective in prompting proactive thinking. Indeed, looking back, I should have applied SWOT more in the three printing companies I led. Consider discussing these questions with your team regularly.
-
What are our internal strengths (something we do well), and how can we use those strengths to serve our customers better and attract new business?
-
What are our internal weaknesses (competitive disadvantages), and what is our plan to address those weaknesses?
-
What are potential market opportunities for our company, and what’s our plan to leverage those opportunities?
-
What are external threats to the company’s well-being, and what’s our plan to prepare for those possible occurrences?
Bottom line… from the current paper supply-chain issues, grow your team’s ability to think proactively on an ongoing basis. Consider discussing SWOT monthly to prompt proactive thinking. Leaders, take a positive away from the present paper mess!
No single issue is impacting the printing industry more than the shortage of paper and the significant rise in costs when stock is available. So, on behalf of our print members, we wanted to ask the experts, where we are, how we got there and what does 2022 and beyond look like for our industry. On February 3, 2022. Upwards of 60 participants from over 35 different companies took part in a webinar hosted by Tony Golden of Lindenmeyr-Munroe Paper Co with presentations by Gilbert Goodworth of Domtar Paper and Mike Robinson of Verso.
While we are facing unprecedented challenges, the seeds for our current situation were planted years ago as demand for all grades of printing paper started to fall. The response on the part of the mills was to close some, reduce capacity at others, take machines offline, and in some cases, repurpose machines to produce products in growing segments like packaging. So, when demand increased in the latter part of 2020 and throughout 2021, at a time of lower overall capacity, unprecedented stress was put on the supply chain and that pressure included pulp, chemicals related to papermaking, and even things like lumber and nails for pallets used in the shipping of paper. It seemed that everything that could be a problem, became one.
While the current challenges cross all types of paper, the speakers presented two very different perspectives. Coated paper is heavily dependent on imports for well over 50% of production and the issues facing them include covid’s impact on the workforce, increase in demand, difficulties in the countries of origin and transporting paper through US ports. Uncoated is primarily made in North America and their problems differ only in that the paper doesn’t have to travel from foreign ports. The 2022 election season will further stress the paper supply, coated cover, in particular, the substrate used for many of the products associated with election mailings and handouts.
While concerns raised by the presenters included machines that are running beyond sustainable capacity, increasing trucking and maritime costs and shortages all along the chain including a significant shortage of truck drivers, there was some good news. Demand continues to be robust with Q4 2021 production 79,000 tons (5%) higher than Q4 202. The presenters shared some statistics about how print products have performed in the last year. There was a 6-9% increase in book sales over 2020, a forecasted increase in commercial print of 5.2-6.2% over 2021 and global direct mail is expected to grow from 71+ billion to 72+ billion in 2022.
Summary
Currently, almost every mill is on allocation/ reservation. There had been a ten-year, or more, lessening of demand for printing papers that the pandemic only exacerbated. While we are facing the perfect storm of chemical, pulp, pallet supply, shipping challenges, and Covid 19’s effect on workforce, demand increased and affected all grades of sheets and web grades.
At the time of this webinar, no mill can allocate 100% of past usage to their customers, and thus the guessing game each month is how much can the mill supply. It can be as low as 60% and there is little light at the end of the tunnel for the foreseeable future. All the experts on the webinar stressed that paper machine efficiency is critical and that all machines, coated and uncoated, are running beyond the safe range for sustainability. To add to the difficulties, some machines may have to go offline in 2022 for maintenance. Everything related to the manufacturing and bringing to market of paper has risen significantly since the start of the pandemic.
What can you do? Plan ahead with your clients, order well in advance, be flexible about grades and finishes and prepare for a challenging 2022. At present, there is little light at the end of the tunnel but be assured that the merchants and the mills are doing everything they can to help their customers thrive in, what continues to be unprecedented times!!